Rupee Depreciation Effect

Vinish ParikhDecember 16, 2011

Rupee has been deprecating against the dollar for the past 4 months and many analysts are predicting it that it will depreciate further. Rupee depreciation means that India’s currency has lost its value in comparison to US dollar, now the question is what will be the impact of rupee deprecation, well at this point it is difficult to quantify it but given below are some of the possible effects of rupee deprecation –

Inflation which has been haunting Indians for past 2 years will rise as India is a net importer, and crude being primary import, the cost of importing crude will rise even if the price of crude falls in international markets. Hence inflation will be the key risk due to deprecation of rupee.

Indian corporate sector which import raw materials from abroad will also be hit hard as they have to pay more for imports and therefore their profit margin will be hit hard.

Small importers will also be in pain as they too have to pay more for dollar, which in turn would make some smaller importers to go out of business or may even lead to bankruptcy.

Exporters like IT companies will be benefited because of rupee deprecation as they will receive more rupees per dollar which improve their bottom line and hence more profits for them.

Other people like non resident Indians who remit dollars to India will also benefit out of this, and also foreigners coming to India will find it cheap to come to India which will in turn benefit the hospitality sector.

Students going abroad for further studies and Indians going to foreign travel will be pinched hard due to his movement in rupee.

Rupee deprecation has more disadvantages than advantages and if this fall is not controlled in time than it can have serious effects on the Indian growth story and also it can lead to downgrading of Indian economy by rating agencies all over the world.

Depriciation of Rupee value is because we have more Rupee as Transactional money than Dollars . If we need to make balance we need to invite more FDI ‘s and FII’s in economy . Govt. has tried hard to put this card forth but effort turned futile due to political pressure . Now what govt. can do is either increase exports or reduce the cap for sector where FDI’s and FII’s are already allowed.

This is the way the India is loosing it’s value, in terms of finance. No one is good in the present Govt. to take the necessary actions to at least stabilize the value of rupee since years. One way rupee value is decreasing, on the other way petrol and other necessities value is increasing, but the salaries are not increasing . Hence, the layman/middle class people life leading is becoming a big question these days.